Image source: Disney.
Walt Disney Co. (DIS 0.51%) reports its fourth-quarter and full-year results for fiscal 2016 after the market close on Thursday, Nov. 10.
The entertainment giant is going into the last quarter of its fiscal year on a strong note. For the first nine months of the year, year-over-year revenue and adjusted earnings per share grew 9.1% and 16.7%, respectively.
That said, investors shouldn't have inflated expectations for the fourth quarter since Disney is facing tough year-ago comparables. Year-over-year revenue and adjusted EPS grew 8.9% and a whopping 34.8%, respectively, in the fourth quarter of 2015. Comparables should be particularly tough for studio entertainment and media networks.
The headline numbers
Here are the previous period's results to use as benchmarks:
|
Metric |
Q4 2015 Result |
|---|---|
|
Revenue |
$13.59 billion |
|
Segment operating income |
$3.5 billion |
|
Net income |
$1.6 billion |
|
Earnings per share (EPS) |
$1.18 |
Data source: Disney.
Disney doesn't provide earnings guidance. Analysts are expecting The House of Mouse will earn $1.20 per share on revenue of $13.51 billion, representing a year-over-year decline of 1.7% and an increase of 0.6%, respectively. While quarterly results might prove to be uninspiring, the full-year picture should prove to be bright. For fiscal 2016, analysts expect EPS of $5.78 on revenue of $56.1 billion, representing year-over-year growth of 12.2% and 6.9%, respectively.
Long-term investors shouldn't place too much importance on analysts' estimates since Wall Street is focused on the short term. However, they can be handy to know as they often help explain market reactions
Beyond the headline numbers, here's what to watch in the report:
Media networks: Cable networks' key metrics and ESPN subscriber count
Within media networks, Disney's largest and most profitable segment, investors should continue to focus on the cable networks business, including any mention of changes in ESPN's subscriber count.
Over time, cable networks' revenue growth, operating income growth, and operating margin will likely reflect to what degree cord-cutting and cord-slimming -- the topic that has spooked the market for more than a year -- are hurting Disney's business. Investors shouldn't draw conclusions based upon results for any single quarter -- year-over-year quarterly results will occasionally be lumpy due to such factors as timing shifts between quarters.
While cable networks' metrics are a key focus, investors should consider Disney's business as a whole.
Studio Entertainment: Dory should swim on, but expect tough comparables
The fiscal fourth quarter is typically a slower quarter for the entertainment giant on the movie front, since it's sandwiched between the big spring/early summer movie release quarter and the holiday quarter. This is more true this quarter than it was in the year-ago quarter, so expect challenging year-over-year comparables.
Movies released at the tail end of the third quarter and in the fourth quarter were The BFG, Pete's Dragon, The Light Between Oceans, and Queen of Katwe. Moviegoers haven't been rushing en masse to see any of these films. BFG, the top ranking of the bunch, has taken in $176.8 million in theatrical receipts as of Oct. 24, making it currently the 33rd top-grossing movie worldwide in 2016, according to Box Office Mojo. By contrast, Inside Out and Ant-Man, which opened in mid-June and mid-July of last year, performed very well in the fourth quarter of 2015. Inside Out raked in $875 million at box offices worldwide last year.
One big saving grace for studio entertainment in the quarter should be Finding Dory, which opened about two weeks before the end of the third quarter, and was still making a splash in the fourth quarter. The Pixar film is currently the No. 3 top-grossing movie worldwide of the year, with a box-office take of nearly $1.02 billion as of Oct. 24. The segment should also get a boost from the release of home entertainment formats of the hit films released in the third quarter, Captain America: Civil War and The Jungle Book.
Parks & Resorts: Shanghai Disney stats and attendance at domestic parks
Disney's second-largest segment continues to be a solid and dependable performer thanks to strength in its domestic operations. On average, guests have been spending more money across the board.
Investors should continue to monitor attendance at domestic parks. Overall attendance declined last quarter and was flat in the second quarter, with a modest rise in attendance at Disneyland offsetting a modest decline at Disney World. It hasn't been possible to tease out whether the declines stem from the demand-based pricing policies the company implemented earlier in the year or reflect a saturation point being neared with respect to ticket price hikes. Management has continued to say that there's no indication that the Zika virus is negatively impacting attendance at Florida's Disney World.
Investors should expect management to share some data on the conference call about Shanghai Disney's performance. The fourth quarter will be the first quarter that the massive park, which opened on June 16, has been open the entire quarter.
